1. Compute the Cost of Equity using CAPM for both the telecommunications services and the products and systems divisions.
2. Compute the Weighted Average Cost of Capital for both divisions of Teletech.
3. Compare the Return on Capital numbers to the WACC for each segment. Which of the two divisions should management plan to invest in? Why?
4. Go back and read the criticism that billionaire raider Victor Yossarian made. Do you agree with his analysis? Explain.
Telecommunications Services The telecommunications servic segment provided long-distance, local. and cellular service to more than 7 customer throughout the Southwest and n this segment grew at an average rate of 3% during Midwest. Revenues n 2024. segment revenues, net operating profit after tax (NOPAT. and net assets were $11 billion. S1.18 billion, and SI 1.4 bi respectively. Since the court-ordered breakup of the Bell system telephone monopoly in 1983 Teletech had coped with the gradual deregulation of its industry through aggressive expansion into new services and geographical regions. Most recently, the firm had been a leading bidder for cellular telephone operations and for licenses to offer per sonal communications services (PCS). In addition. the firm had purchased a number of telephone operating companies through privatization auctions in Latin America. Finally, the firm had invested aggressively in new technology primarily, digital service quality. All of switches and optical-fiber cables-in an efort to enhance those strategic moves had been costly: the capital budget in this segment had varied between S1.5 billion and S2 billion in each of the previous 10 years. ecommunications segment had been under Unfortunately, profit margins in the te pressure for several years. Government regulators had been slow to provide rate re o Teletech for its capital investments. Other leading telecommunications providers had expanded into Teletech's geographical markets and invested in new technolog and quality-enhancing assets. Teletech's management noted that large cable-TV com panies had aggressively entered the telecommunications market and continued the pressure on profit margins Nevertheless, Teletech was the dominant service provider in its geographical mar was the kets and product segments. Customer surveys revealed that the company leader in product quality and customer satisfaction. Its management was confident that the company could command premium prices no matter how the industry might Products and Systems Before 2000, telecommunications had been the company's core business, supple mented by an equipment-manufacturing division that produced telecommunications components. In 2000, the company acquired a leading computer workstation manu facturer with the goal of applying state-of-the-art computing technology to the design of telecommunications equipment. The explosive growth in the microcomputer com ket and the increased usage of telephone lines to connect home- and puters with mainframes convinced Teletech's management of the potential value of marrying telecommunications equipment with computing technology. Using the prod capital base, and distribution network to catapult growth, cts and systems segment increased its sales by nearly 40% in 2004. This segment's 2004 NOPAT net assets were 480 million an The products and systems segment was acknowledged as a technology leader in the industry. While this accounted for its rapid growth and pricing power, maintenance Telecommunications Services The telecommunications servic segment provided long-distance, local. and cellular service to more than 7 customer throughout the Southwest and n this segment grew at an average rate of 3% during Midwest. Revenues n 2024. segment revenues, net operating profit after tax (NOPAT. and net assets were $11 billion. S1.18 billion, and SI 1.4 bi respectively. Since the court-ordered breakup of the Bell system telephone monopoly in 1983 Teletech had coped with the gradual deregulation of its industry through aggressive expansion into new services and geographical regions. Most recently, the firm had been a leading bidder for cellular telephone operations and for licenses to offer per sonal communications services (PCS). In addition. the firm had purchased a number of telephone operating companies through privatization auctions in Latin America. Finally, the firm had invested aggressively in new technology primarily, digital service quality. All of switches and optical-fiber cables-in an efort to enhance those strategic moves had been costly: the capital budget in this segment had varied between S1.5 billion and S2 billion in each of the previous 10 years. ecommunications segment had been under Unfortunately, profit margins in the te pressure for several years. Government regulators had been slow to provide rate re o Teletech for its capital investments. Other leading telecommunications providers had expanded into Teletech's geographical markets and invested in new technolog and quality-enhancing assets. Teletech's management noted that large cable-TV com panies had aggressively entered the telecommunications market and continued the pressure on profit margins Nevertheless, Teletech was the dominant service provider in its geographical mar was the kets and product segments. Customer surveys revealed that the company leader in product quality and customer satisfaction. Its management was confident that the company could command premium prices no matter how the industry might Products and Systems Before 2000, telecommunications had been the company's core business, supple mented by an equipment-manufacturing division that produced telecommunications components. In 2000, the company acquired a leading computer workstation manu facturer with the goal of applying state-of-the-art computing technology to the design of telecommunications equipment. The explosive growth in the microcomputer com ket and the increased usage of telephone lines to connect home- and puters with mainframes convinced Teletech's management of the potential value of marrying telecommunications equipment with computing technology. Using the prod capital base, and distribution network to catapult growth, cts and systems segment increased its sales by nearly 40% in 2004. This segment's 2004 NOPAT net assets were 480 million an The products and systems segment was acknowledged as a technology leader in the industry. While this accounted for its rapid growth and pricing power, maintenance
